Gold Market To Watch Greece Turmoil, U.S. Dollar

By Paul Ploumis 22 Jun 2015 Last updated at 01:50:30 GMT

(Kitco News) - Gold is expected to remain caught in a tug of war between the U.S. dollar and safe-haven demand as Greece’s repayment deadline quickly approaches, according to commodity analysts.

Gold is ending its second consecutive week in positive territory; the market managed to hold on to most of its gains from Thursday’s 1.5% rally. Comex August gold futures settled Friday’s session at $1,201.90 an ounce, up almost 2% since Monday.

The rally in gold also appears to have helped drive silver prices higher as it managed to end its four-week slump. Comex July futures settled Friday at $16.109, up 1.3% on the week.

Looking ahead, despite gold’s strong late-week performance, retail investors are still negative on the metal while commodity analysts have moved to the sidelines, according to the results of Kitco News’ Wall Street vs Main Street Weekly Gold Survey.

This week, 388 people participated in Kitco’s online survey. Of those 201 participants, or 52%, are bearish on gold next week; 135 people, or 35%, are bullish on gold and 52, or 13%, are neutral.

The results of the professional survey were less conclusive. Out of 33 market experts contacted, 18 responded; of those, 9 participants, or 50%, are neutral on gold next week. Seven experts, or 39%, see higher prices and two, or 11%, see lower prices. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

One of the reasons analysts are hesitant is because there is still a lot of uncertainty in the marketplace, especially when it comes to Greece. According to media reports, an emergency meeting will be held Monday and some economists are expecting the Eurogroup to give the beleaguer nation a “take it or leave it” offer and it is uncertain whether Greece would accept it or not.

Diego Iscaro, senior economist at IHS Global Insight, said hopes of a last-minute deal being made are fading fast.

"Although the next ‘hard’ deadline is the end of June, when the IMF loans will have to be paid, the two sides will have to reach an agreement before that date as any deal may have to be approved by several Eurozone parliaments,” he said.

Nick Exarhos, senior economist at CIBC World Markets, said the escalating Greek Funding crisis is positive for gold, but its impact could be limited as there is still a chance the two sides can muddle through to come to another short-term agreement.

"I just wouldn’t put too many chips on the table if you were betting what will happen with Greece,” he said. “It’s difficult to predict what is going to happen when it looks like even the politicians don’t know what to do.”

Exarhos, said that instead of Greece he will continue to watch U.S. economic data as that will have a major impact on forecasts for when the Federal Reserve will hike rates. Positive data that supports a September rate hike will be positive for the U.S. dollar and negative for gold.

"It is hard to be positive on gold when it’s only a matter of time before the Fed hikes rates,” he said. “We are expecting the U.S. dollar to catch a bid on positive economic data and that will ultimately be negative for gold.”

Economists and traders will have plenty of opportunities to adjust their interest rate expectations next week as there will be a slew of economic data including housing sales data, durable goods numbers, along with preliminary manufacturing data. Markets will also receive the final gross domestic report for the first-quarter, although this is now backwards looking, some economists warn that any major revision will impact annual economic growth projections.

Bill Baruch, senior commodities broker at iiTrader, agreed more positive economic data will be negative for gold in the long-run. He added that gold’s rally Thursday, lost momentum Friday as prices were unable to break through near-term resistance at $1,205.

He explained that his strategy is to sell gold as it tests new resistance levels.

"Sell the rally at the first test of $1,205, which happened yesterday, sell the rally at $1,209, sell the rally at the first test of $1,221 and sell the rally at the first test of $1,232,” he said. “It is not going to be until the price moves past $1,232.80 that we are going to see a clean break out.”

Courtesy: Kitco News